1. Overview

Fibonacci Retracement is a widely used technical analysis tool to identify support and resistance levels in both bullish and bearish markets.

This strategy uses Fibonacci ratios (38.2%, 50%, 61.8%) to predict potential retracement levels where price may reverse, providing entry and exit points for trades.

It is especially useful in trending markets (uptrend or downtrend) and can be more reliable when combined with RSI, volume analysis, and other indicators.

2. What is the Fibonacci Retracement Strategy?

This strategy is based on the concept that when a price moves significantly in one direction, it is likely to retrace a certain percentage before continuing in the original direction.

• Buy Entry: In an uptrend, buy at the 38.2% or 61.8% retracement level if the price rebounds.
• Sell Exit: Sell when the price reaches a Fibonacci extension level (1.618 or 2.618) and starts to decline.

This strategy is more effective when confirmed with specific candlestick patterns and volume increases.

3. Buy & Sell Conditions

✅ Buy Conditions (Entry)

Consider buying when the following conditions are met:

1. In an uptrend, the price rebounds at the 38.2% or 61.8% retracement level.
2. A bullish candlestick appears with increasing volume.
3. Additional confirmation: RSI is below 30 (oversold), increasing reliability.

 Example:

• If Bitcoin surges and then retraces to the 38.2% level and rebounds, enter a buy position.
• If volume increases and a strong bullish candlestick appears, the buy signal strengthens.

✅ Sell Conditions (Exit)

Consider selling when the following conditions are met:

1. The price reaches a Fibonacci extension level (1.618 or 2.618).
2. A strong bearish candlestick appears, signaling an immediate exit.
3. Additional confirmation: RSI is above 70 (overbought), increasing reliability.

 Example:

• If Bitcoin surges and reaches the 1.618 extension level, sell if resistance is encountered.
• If volume decreases and a strong bearish candlestick appears, the sell signal strengthens.

4. Advantages & Limitations of the Fibonacci Retracement Strategy

✅ Advantages

✔ Clearly identifies potential price reversal zones:

• Helps traders predict strong support and resistance levels. ✔ Well-suited for trend trading:
• Works effectively in both bullish and bearish markets. ✔ Can be combined with other technical indicators:
• Enhances reliability when used with RSI, MACD, and moving averages.

❌ Limitations

❌ Not 100% accurate:

• Some retracement levels may not hold, leading to failed trades. ❌ Less effective in ranging (sideways) markets:
• Works best in strong trending conditions. ❌ Lower reliability when used alone:
• Should always be analyzed alongside volume, RSI, and other indicators.

5. Practical Application of the Fibonacci Retracement Strategy

 Ways to Strengthen the Strategy

1. Combine with RSI

   • If the price reaches a Fibonacci retracement level while RSI is below 30, it signals a strong buy.
   • If the price reaches an extension level and RSI is above 70, it signals a strong sell.

2. Use with Volume Analysis

   • If the price rebounds at a retracement level with increasing volume, the signal gains credibility.
   • If the price drops at an extension level with increasing volume, a downtrend is more likely.

3. Analyze Support & Resistance Levels

   • If a Fibonacci retracement level aligns with an existing support level, the likelihood of a bounce increases.
   • If an extension level aligns with a resistance level, the chance of reversal is higher.

 Real-World Trading Example (Bitcoin Case Study)

 Buy Example

1. Bitcoin surges and retraces to the 38.2% level, then rebounds.
2. RSI is below 30 → An oversold condition signaling reversal.
3. Volume increases + a strong bullish candlestick appears → Strong buy signal.

✅ Outcome: Price rises, leading to potential short-term profits.

 Sell Example

1. Bitcoin reaches the 1.618 extension level.
2. RSI is above 70 → An overbought condition signaling a potential drop.
3. Volume increases + a strong bearish candlestick appears → Strong sell signal.

✅ Outcome: Price declines, preventing potential losses.

6. Conclusion

The Fibonacci Retracement Strategy is a powerful tool for predicting support and resistance levels in trending markets. When used alongside RSI, volume analysis, and other indicators, reliability significantly increases.

 Recommended Applications

• Short-term trading (scalping, day trading): Fibonacci retracement + RSI
• Swing trading (mid-term holding strategy): Fibonacci retracement + volume analysis
• Additional filtering: Combine with MACD, moving averages for increased accuracy

If Chairman applies this strategy to an AI automated trading system, backtesting is essential to find optimal conditions.